Climate Shocks and the 'Hidden GDP Drain': Assessing India's Economic Vulnerability

The Indian economy is facing a silent but potent threat: the 'hidden GDP drain' caused by climate change. As global temperatures rise, the frequency and intensity of extreme weather events—ranging from erratic monsoons to prolonged heatwaves—are disrupting the foundational pillars of the Indian economy. With approximately 43% of the workforce still dependent on agriculture, the sector remains highly sensitive to climatic shifts. Unpredictable rainfall patterns not only jeopardize crop yields but also trigger food inflation, which complicates the Reserve Bank of India’s monetary policy and impacts the purchasing power of the most vulnerable sections of society. Beyond agriculture, the infrastructure sector is under immense pressure. Climate-induced disasters, such as flash floods and cyclones, cause significant damage to transport networks, power grids, and urban infrastructure, necessitating frequent and costly repairs. This diverts public finances away from productive capital expenditure toward disaster relief and reconstruction. Furthermore, the decline in labour productivity due to extreme heat, particularly in the construction and manufacturing sectors, acts as a drag on industrial output.